Annuity debate is still out on Prudential's Highest Daily Lifetime 6 Plus

Q. Prudential has an annuity called Highest Daily Lifetime 6 Plus. It is a variable annuity. Is it a good annuity product? Is the fee too high? Someone suggested the product to me— Ryan

A. You’re right to question whether or not an annuity is the right investment product for you. The answer: maybe.

‘‘I know of a lot of ‘one trick ponies’ in the financial services industry who only sell annuities and no matter what your objection, they have a great answer why you need their product,’’ said Jerry Lynch, a certified financial planner with JFL Consulting in Fairfield.

In simplest terms, Lynch said an annuity is a promise from an insurance company to pay you an income stream for a specific period of time. It will grow your money in a variable annuity based on how the underlying investments that you select perform or based upon a formula guarantying a minimum rate of return. The minimum guaranteed amount (which is like a phantom account) can only be taken out based upon the contract provisions (usually four to six percent annually for life) and can not be taken out as a lump sum, he said.

Annuity fees are higher than mutual fund fees because you are putting an insurance wrapper on your money, guaranteeing you a certain rate of return. Does this product make sense for you? Only if it fits with the rest of the things that you are doing, he said.

‘‘All your money should not be in an annuity as you have limited liquidity,’’ he said, noting that no more than 30 to 50 percent of your liquid assets should be in an annuity, if you decide to go there.

The Prudential HD Lifetime 6 Plus program offers to provide guaranteed lifetime income based on six percent compounded growth of the variable annuity’s highest daily value, said Jim Marchesi, a certified financial planner with Mill Ridge Wealth Management in Chester. This guaranteed growth rate is offered by Prudential, for a period of time(s) identified in the contract, or until the first lifetime withdrawal is taken. Without knowing the rest of your financials, it’s impossible to say if this product, or any product, is right for you.

‘‘Variable annuities can add a combination of growth and predictability to a portfolio, for an increased operational cost,’’ Marchesi said. ‘‘Investors need to go through a discovery process to determine if the added costs are validated by the offer.’’